S&P Global Ratings has downgraded debt-laden Vedanta Resources Ltd to ‘selective default’ after the mining conglomerate concluded a deal with creditors to extend the maturities of its three dollar bonds.

“We view Vedanta Resources’ just concluded liability management exercise, which involved three of its US dollar-denominated bonds, as a distressed transaction,” the rating agency said in a statement.

The junk-rated Vedanta had last week stated that its bondholders have approved extension of the maturities of USD 3.2 billion of bonds maturing in 2024 and 2025.

Under the deal, the company will pay USD 779 million upfront, with the remaining principal extended by as much as four years.

“On January 12, 2024, we lowered our long-term issuer credit rating on Vedanta Resources to ‘SD’ (selective default) from ‘CC’. We also lowered the issue ratings on the company’s bonds due January 2024, August 2024, and March 2025 to ‘D’ from ‘CC’,” S&P said.

The issue rating on the UK- and India-based miner’s April 2026 bond (which was not part of the liability management transaction) remains ‘CCC’ and on CreditWatch with developing implications.

As part of the extension exercise, Vedanta addressed the repayment of three bond maturities totaling USD 3.2 billion using a mix of cash and new bonds.

It exchanged about half of the January 2024 bond with new bonds maturing in January 2027, with the rest paid in cash.

The company also exchanged 94 per cent and 84 per cent respectively of the August 2024 and March 2025 bonds for new amortizing bonds that will mature in December 2028, with the rest prepaid in cash.

“We regard the transaction as distressed, and not simply opportunistic,” S&P said.

This is because “the likelihood of a conventional default in the absence of the transaction was high” due to Vedanta’s large upcoming debt maturities and reduced access to both internal cash flow and external financing.

“We do not consider the new terms of the proposed transaction as constituting adequate compensation to offset the maturity extension and some cashflow subordination to a new financing facility,” it said.

Vedanta, the parent firm of Mumbai-listed Vedanta Ltd, has debt repayments of about USD 900 million each in fiscal 2025 and 2026 (years ending March 31).

“While this is much lower than the company’s refinancing needs of about USD 3 billion annually over the past two to three years, we believe the maturities are still meaningful, given the company’s reduced financing access. These debt maturities will need to be refinanced or met through the creation of additional dividend capacity at its subsidiaries, particularly at Hindustan Zinc Ltd,” the rating agency said.

S&P said it believes further deleveraging at Vedanta Resources, possibly driven by asset sales at subsidiary Vedanta Ltd, will be necessary to sustainably improve access to external funding.

“In the meanwhile, we expect to raise our rating on Vedanta Resources to the mid-to-high ‘CCC’ category in coming days,” it said.

The firm has also tied up a new USD 1.25 billion private credit facility maturing in April 2026 to fund the upfront redemption payment of the bonds.

First Published: Jan 12 2024 | 6:41 PM IST


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